The Ultimate Blueprint for an Insanely Successful Business by Keith J. Cunningham

Author:Keith J. Cunningham
Language: eng
Format: mobi, epub
ISBN: 9780984659241
Publisher: Keys to the Vault
Published: 2012-02-06T14:00:00+00:00

Chapter 10

Maximizing Cash Flow

Do you know the number one reason nine out of ten new businesses don’t see their tenth birthday? It’s not that their owners lack passion or drive. It’s not that there’s insufficient demand for their product or service. It’s not that they aren’t logging the hours, and it’s certainly not because they aren’t marketing and selling.

It’s a cash thing.

Businesses fail when they run out of cash. Businesses fail because they can’t pay their bills. A business cannot survive even a week without the oxygen of cash.

If you expect to keep the doors open, it’s critical that you maximize cash and cash flow. So how do you maximize your cash flow so that your business doesn’t become just another statistic in the business obituary column?

Let me repeat what I said in Chapter 6: Not all cash is created equal. Cash can be generated or used in only three ways: Operations, Investing, and Financing. While all three are cash, only one of them is a result of running the business end of your business—and that’s operating cash flow (or OCF). Sure, you can generate cash flow by selling your company car or your used computer (investing cash flow, or ICF) or you can borrow money from the bank or get your rich uncle to invest a few more dollars (financing cash flow, or FCF), but neither one of these are sustainable. There is a limit on how much “things and stuff” you own that can be sold and how much money you can borrow.

To be sustainable, your business must produce positive cash flow from the operations of the business.

When business owners start to confuse the sources of cash in their business, they’re headed for trouble. Only operating cash flow tells the story of how productive management is at converting profits (theory) into cash (fact).

If you’re unhappy with your operating cash flow, you have a total of five levers you can pull. Your income statement drives the first two:

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